Medicare Beneficiary Savings and the Affordable Care Act

February 2012

Abstract

This Issue Brief provides estimates of Medicare Parts A, B,
and D savings from the Affordable Care Act to seniors and people living with
disabilities enrolled in traditional Medicare. The Affordable Care
Act will favorably affect beneficiary expenditures in four ways: lowering
part B premiums growth, lowering beneficiary copayments and coinsurance growth
under Part A and B, closing the Medicare prescription drug coverage gap,
and providing many preventive services to seniors at no additional cost.
The study estimated the savings to beneficiaries from these effects for the
2011-2021 period.

This Issue Brief is available on the Internet at:
http://aspe.hhs.gov/health/reports/2012/MedicareBeneficiarySavings/ib.shtml

The Affordable Care Act makes many changes to strengthen Medicare and provide
stronger benefits to seniors, while slowing cost growth. As a result,
average Medicare beneficiary savings in traditional Medicare will be
approximately $4,200 over the 2011 to 2021 period (see Table
1). Beneficiaries who have high prescription drug spending will
save much more  close to $16,000 over the same period. In
comparison, Medicare beneficiaries with low drug costs will save about $3,000
over this period.

This report provides estimates of savings from the Affordable Care Act to
seniors and people living with disabilities enrolled in traditional
Medicare. The Affordable Care Act will favorably affect beneficiary
expenditures in four ways. First, premiums for Part B physician and
certain other services are expected to increase at a slower rate than would
have occurred without the Affordable Care Act, resulting in lower Part B
premiums over time. Second, beneficiary copayments and coinsurance
under Part A and B will increase more slowly because the Affordable Care
Act slows the rate of growth in payments to hospitals and other providers.
Third, closing the Medicare prescription drug coverage gap, often called
the donut hole, will lower costs for beneficiaries who otherwise
would have been required to spend thousands of dollars out of their own pocket
for their prescription drugs. Finally, the Affordable Care Act will
provide many preventive services to seniors at no additional cost.

The Affordable Care Act will reduce Medicare spending through reductions
in extra subsidies paid to Medicare Advantage plans, reductions in the rate
of growth in provider payments, efforts to make the Medicare program more
efficient, coordinated, and quality-oriented, and reductions in waste, fraud
and abuse. These provisions will lead to corresponding savings for
beneficiaries through lower copayments and premiums. An expected slower
rate of growth in Medicare spending leads to a slower rate of growth in
beneficiary out-of-pocket payments, and a slower rate of growth in Part B
premiums. In addition, the closing of the donut hole will result in
large savings for beneficiaries with high levels of prescription drug spending.

Average savings per traditional Medicare beneficiary are estimated to be
$90 in 2011, increasing to $710 in 2021 (see Table 1).
For a beneficiary with spending in the donut hole, total estimated annual
savings increase from $631 in 2011 to $2,386 in 2021.

Savings include parts A, B, and D effects. Part A & B, and D premium
savings for 2010-19 estimated by OACT

Parts A and B estimates for 2010-19 are provided by OACT, October 5, 2010,
John Shatto

Estimates for 2020-21 are computed by ASPE/HP in consultation with OACT

Savings for beneficiaries in the donut hole estimated by ASPE, using Medicare
Part D data in 2010 generated by Acumen for ASPE (Non-LIS FFS Beneficiaries
with at least 1 Month in D in 2010) and the discounts to beneficiaries in
2011 are benchmarked to CMS analysis of 2011 PDE claims data

Changes in premiums and cost sharing will also occur in the Medicare Advantage
program. The Affordable Care Act will reform this program, gradually
eliminating excessive payments to health plans, rewarding quality, and improving
protections for beneficiaries against overly high cost sharing. The
most recently available data on Medicare Advantage plans suggest that premiums
have fallen by 7 percent on average, and enrollment has risen about 10 percent
since this time last year.[1]

This memo was prepared by analysts in the Office of the Assistant Secretary
for Planning and Evaluation (ASPE) in consultation with the Office of the
Actuary (OACT) of the Centers for Medicare & Medicaid Services (CMS).
The savings for traditional Medicare beneficiaries from reduced Part B premiums,
reduced Parts A and B coinsurance and copayments, and from increased Part
D premiums were estimated by
OACT.[2] Savings from reduced
Part A and B coinsurance will vary across beneficiaries. Beneficiaries
with multiple chronic conditions, those using a higher than average volume
of services, as well as those who make greater use of preventive services,
will enjoy a greater than average amount of savings. The estimated
effects for beneficiaries not in the donut hole are shown in
Table 2.

Table 2Components of Estimated Affordable Care Act Savings
per FFS Beneficiary for Beneficiaries Not in the Donut Hole

Year

Effects of reduced
part B premium

Effects of reduced
A & B coinsurance

Effects of increased
part D premium

Total Effect

2011

19

14

-6

27

2012

53

41

-2

92

2013

72

62

0

134

2014

90

79

-1

168

2015

113

101

-2

212

2016

139

124

-2

261

2017

169

148

-7

310

2018

192

175

-13

354

2019

218

207

-20

405

2020

248

245

-31

462

2021

281

291

-33

539

Notes:

Estimates for 2010-19 are provided by OACT, October 5, 2010, John Shatto

Estimates for 2020-21 are computed by ASPE/HP in consultation with OACT

The Affordable Care Act requires drug manufacturers to provide a discount
for covered brand name Part D drugs sold to seniors in the donut hole (50%
starting in 2011) and later provides subsidies for covered brand name Part
D drugs to those beneficiaries rising from 2.5% in 2013 to 25% in 2020.
Finally, the Affordable Care Act provides subsidies for generic drugs purchased
in the donut hole beginning at 7% in 2011 and rising to 75% in 2020.
Together, these changes mean that a beneficiary will pay the standard 25%
coinsurance in a standard plan in 2020 for generic and brand drugs, and the
donut hole will be closed.

In 2011, nearly four million seniors and people with disabilities in Medicare
Part D received $2.1 billion in discounts on prescription drugs in 2011 when
they hit the donut hole coverage gap, for an average of $604
per person. These discounts, which beneficiaries received automatically
under the Affordable Care Act, will continue to grow through 2020 until the
donut hole is fully closed.

The Affordable Care Act also lowers the rate of growth of the out-of-pocket
threshold for drug spending by beneficiaries in the donut hole from 2014
to 2019. We estimate savings to beneficiaries from this change using
a combination of information from OACT and results from the analysis described
above.[3]

The estimates are presented in Table 3 below. For
beneficiaries with spending in the donut hole, total estimated Parts A, B,
and D savings increase from $631 in 2011 to $2,386 in 2021.

Filling the donut hole /2 for a beneficiary whose spending
reaches the hole

Reducing the growth in part D OOP threshold for a bene in the
gap /1

Total Effect

2010

-6

0

250

0

244

2011

33

-6

604

0

631

2012

94

-2

643

0

735

2013

134

0

723

0

857

2014

169

-1

780

48

996

2015

214

-2

879

62

1,152

2016

263

-2

954

112

1,327

2017

317

-7

1,114

131

1,555

2018

367

-13

1,293

153

1,799

2019

425

-20

1,492

178

2,075

2020

493

-31

1,734

0

2,196

2021

572

-33

1,847

0

2,386

Notes:

Estimates for 2010-19 are provided by OACT, October 5, 2010, John Shatto
memo, and estimates for 2020-21 are computed by ASPE/HP in consultation with
OACT

Estimates by ASPE/HP based on Medicare Part D data in 2010 generated by Acumen
for ASPE (Non-LIS Beneficiaries with at least 1 Month in D in 2010) and the
discounts to beneficiaries in 2011 are benchmarked to CMS analysis of 2011
PDE data

Part D estimates incorporate 3 effects: (1) savings due to filling the doughnut
hole, (2) savings due to reducing the growth rate of the catastrophic threshold
during 2014-19, and (3) an offset from increased part D premium.

[3] In a memo from Richard Foster,
April 22, 2010; Table 3, sec 1101, OACT estimated that
the cost to Medicare from the slower growth in the out of pocket threshold
was approximately 11% of the cost to Medicare from closing the donut hole.
We apply this 11% estimate to our estimate of the cost to Medicare from closing
the donut hole to estimate the savings to beneficiaries from the slower growth
in the out of pocket threshold from 2014 to 2019.